I don’t think any investor is holding out for a bull run in silver or other precious metals in 2015, thanks in part to rising interest rates and a weak economic outlook. But 2016, on the other hand, is a whole different matter. Now is the perfect time to look for the top silver stocks to watch in 2016.
Silver Prices Remain Bearish for 2015
Trading at a six-year low, silver is set to end 2015 down for a record fourth year in a row. While there may not be a lot of reasons to have silver and other precious metals on your radar right now, 2016 could be a whole other matter.
There are a number of issues setting 2016 up as the year that silver prices start a renewed, and well-deserved, bull run. First, with unemployment figures low, nonfarm payrolls strong, and inflation approaching the magic two percent target, the Federal Reserve is expected to raise interest rates at the end of the year.
Higher interest rates increase the yield on interest-bearing assets like bonds, which decreases the appeal of precious metals like silver, gold, and platinum. This could put additional short-term pressure on silver prices in 2015.
Second, the stronger U.S. dollar is a bearish signal for silver, which, like gold, is priced in U.S. currency. On top of that, ongoing weakness, particularly in China, is also waning the demand for silver.
Silver Prices Set for Bull Run in 2016
That said; a number of issues will arise in 2016 that should have a positive impact on silver prices. First, the negative. Investors like precious metals like silver because it is a hedge against economic uncertainty. Silver is also a great way to diversify your portfolio.
The global economy, the foundation upon which we base stock prices, is dismal. China, the world’s second-largest economy, expects its gross domestic product (GDP) to grow at seven percent this year. Relative to the U.S., that’s pretty solid. But for China it represents the worst performance in more than two decades.
The eurozone is still a mess. Japan’s economy is not exactly a model of consistent growth. In fact, it’s tough to decide whether or not Japan is recovering or not. And Canada, the U.S.’s largest trading partner, is in a recession.
This is important because an increasingly larger number of S&P 500 companies are relying on sales from foreign countries to ignite their depressed revenue and earnings. In 2014, the percentage of S&P 500 sales coming from outside the U.S. was 47.82%; up from 46.29% in 2013 and 46% for the previous four years. (Source: spindices.com, last accessed September 23, 2015.)
That said; the U.S. has hardly been the beacon of growth over the last number of years. The stock market may still, technically, be in a bull market. But for how long can investors find solace in that?
Earnings growth in the third quarter of 2015 is expected to decline 4.4%. The forecasted decline at the start of the third quarter was just one percent. If that number holds, it will mark the first back-to-back quarter of earnings declines since 2009. (Source: Factset.com, last accessed September 23, 2015.)
Third-quarter revenue is projected to fall 2.9%. This is also higher than the estimated year-over-year revenue decline of 2.5% at the beginning of the quarter. If this holds, it will mark the first time the index has seen three consecutive quarters of year-over-year revenue declines since the first quarter of 2009.
A bull-market can only be propped up by the Federal Reserve for so long. Weak results and valuations will have to, eventually, be looked at.
Fortunately, investors can be an irrational bunch.
Signs of an economic recovery could, at the same time, send silver prices higher. That’s because silver, unlike gold, is an important industrial metal used in medicine, nanotechnology, batteries, electronics, catalysts, and the automotive industry.
While the global economy is particularly troubling right now, U.S. GDP is expected to rise over the coming years; and could tip 3.5% in 2016. A far cry from the 2.2% rate in 2013 and the 2.4% rate in 2014.
Finally, Tuesday, November 8, 2016 may be a long way away, but the U.S. Presidential election is a big question mark. And investors hate the unknown. As a result, stocks could increase in volatility, which could positively impact silver prices later in the year.
Currently trading near $14.75 an ounce, silver prices are expected to soar in 2016, with prices reaching as high as $30.00 per ounce being a real possibility. A 100%+ increase in silver prices would certainly help the following three silver stocks in 2016.
3 Top Silver Stocks to Watch in 2016
Silver Wheaton Corp. (NYSE:SLW, TSE:SLW)
Silver Wheaton Corp. (NYSE:SLW, TSE:SLW) is the largest precious metal streaming company in the world; deriving approximately 60% of its revenue from the sale of silver and 40% from the sale of gold. The company currently has streaming agreements for 21 operating mines and six development-stage projects. (Source: Silverwheaton.com, last accessed September 24, 2015.)
Besides initial upfront payment, Silver Wheaton has no ongoing capital or exploration costs, and does not hedge its production. And, with silver at $14.75, it’s nice to know that its operating costs have been historically fixed at roughly $4.00 per ounce of silver and $400.00 per ounce of gold produced.
In the second quarter of 2015, ended June 30, Silver Wheaton reported record silver equivalent production and sales volume. Silver equivalent production increased 29% year-over-year to 10.9 million ounces. Silver equivalent sales volume was up 34% at 10 million ounces (5.6 million ounces of silver and 61,000 ounces of gold). (Source: silverwheaton.com, last accessed September 23, 2015.)
Second-quarter revenue climbed 11% year-over-year to $164 million while income was down 15% at $53.7 million or $0.13 per share. The average sale price per share equivalent ounce sold in the second quarter was $16.38 per ounce compared with $19.83 per ounce in the second quarter of 2014. The company has also maintained its 1.6% annual dividend yield.
Hecla Mining Co. (NYSE:HL)
Hecla Mining Co. (NYSE:HL) is the largest primary silver producer in the U.S., one of the lowest-cost producers, and a growing gold producer.
The company owns two primary silver mines in Alaska and Idaho and one gold mine in Quebec. It also has a number of exploration properties and pre-development projects in six world-class precious metal districts in North America. Over the years, the company has consistently grown its reserve base, with 2015 reserves totaling 173 million ounces of silver and 2.1 million ounces of gold reserves. (Source: hecla-mining.com, last accessed September 23, 2015.)
In 2015, the company expects silver production of 10.5 million ounces with expected gold production of 185,000 ounces.
Coeur Mining, Inc.(NYSE:CDE)
Coeur Mining, Inc. (NYSE:CDE) is the largest U.S.-based primary silver producer with significant gold production with five precious metal mines in the Americas.
2014 production was 32.2 million silver equivalent ounces, at the high end of guidance. In 2015, the company expects production to be 32.4 to 35.4 million silver equivalent ounces (16 million ounces of silver and 294,000 to 323,000 ounces of gold). (Source: coeur.com, last accessed September 23, 2015.)
In the second quarter, Coeur Mining achieved the strongest financial performance in two years despite the weakened precious metals market. That’s with nearly every mine outperforming initial cost and production targets. As a result, the company is raising its production guidance and lowering its cost guidance for 2015. (Source: coeur.com, August 4, 2015.)
The company is raising its 2015 total production guidance by approximately two percent to 33.1 to 35.9 million silver equivalent ounces (14.7 to 15.8 million silver ounces and 306,000 to 335,000 gold ounces). Coeur is also lowering its guidance for all-in sustaining costs per silver equivalent ounce by approximately three percent to $17.00 to $18.00.